SUHRHEINRICH, Circuit Judge.
Gregory Lutz and Dorothy Becker ("Plaintiffs") filed a class-action suit
The district court sided with Huntington, ruling that the underwriters were administrative employees within the meaning of 29 U.S.C. § 213(a)(1) and 29 C.F.R. § 541.200(a), and therefore exempt from the overtime-pay provisions because their job duties related to the general business operations of the Bank, and they exercised discretion and independent judgment when performing those duties.
For the following reasons, we affirm.
While Huntington offers a number of financial products to the public, we are concerned only with residential loans. The loan process begins with the creation of a loan product, such as a thirty-year fixed-rate mortgage or a particular type of adjustable-rate mortgage, and it ends when an underwriter approves or denies a loan for a customer. First, Huntington's Product Development Group designs a loan product and develops its profile. The profile assesses Huntington's risk appetite for a particular product and establishes guidelines, such as the maximum loan-to-value or debt-to-income the Bank will accept from a customer. The Secondary Marketing Group then sets the interest rate for that product.
An employee known as a loan originator meets with an interested customer and discusses the advantages, disadvantages, and risks of various loan products. The loan originator selects the loan that best fits the customer's needs and begins the application process. A loan processor, another employee, then works with the loan originator or customer to ensure that all of the required documentation is included in the application file. This material includes a credit report, income documentation, asset documentation, the purchase contract, and a title search or report commitment on the product. For most loan applications, that information is uploaded onto an underwriting software program provided by Huntington, and the software generates an electronic file.
Once the application file is complete, an underwriter reviews it. Underwriters perform two functions. First, underwriters confirm that the information provided in the application is accurate. For instance, underwriters use cash-flow analysis and pay-stub calculation worksheets to calculate the applicant's income. Underwriters also compare the information provided in the application to a credit-bureau report.
Second, underwriters decide whether the customer qualifies for the desired loan. When an underwriter electronically receives an application, the underwriting software initially recommends whether to approve or deny the loan. Underwriters essentially review that recommendation. To do this, the underwriter applies the Bank's guidelines ("the Guidelines") and
Underwriters, after careful review of a customer's application, apply the Guidelines. For instance, based on the loan product sought and the customer's risk categorization, an underwriter will calculate a customer's loan-to-value and debt-to-income ratios and then determine whether those ratios fall under the maximum values prescribed for approval by the Guidelines. Thus, in general, the Guidelines ensure that similarly-situated customers are treated equally. Indeed, underwriters are "expected to exercise their judgment regarding credit decisions objectively."
An underwriter may at his or her discretion take actions beyond the Guidelines. Sometimes, the Guidelines expressly give the underwriter a choice among options. Other times, the Guidelines are silent and the underwriter must rely on personal experience or judgment to make a decision. First, Huntington provides a checklist of "stipulations" that a customer must satisfy in order to gain approval for a loan, such as paying off a delinquent credit card or a lien. But an underwriter's discretion may go beyond that list and add unspecified requirements. These additional stipulations are added as a safeguard for the loan.
Second, if a customer does not meet the Bank's lending criteria, but otherwise satisfies certain compensating factors, an underwriter may, at his or her discretion, approve the loan. This is known as an "exception" or "adjustment." As provided in the Guidelines, such compensating factors include: a previous credit history with Huntington, securing the loan with a liquid account at Huntington, or having a co-signer on the note.
Third, an underwriter may make a "counteroffer" that alters the original application. For example, if a customer does not qualify for the desired loan, the underwriter may recommend another type of loan for which the customer would qualify. If an underwriter makes a counteroffer, a loan processor or loan originator works with the customer to decide whether the counteroffer is acceptable to the customer. The authority to grant a counteroffer does not appear in the Guidelines. Instead, it is left to the underwriter to use his or her judgment and experience.
Fourth, an underwriter may "flag" an application that falls within the Guidelines if the loan appears suspicious or contrary to the customer's interests. For instance, if an elderly customer attempts to trade a two-year mortgage for a thirty-year mortgage, the underwriter would ensure that the customer understood the request before approving the loan. The decision to flag an application is also based on judgment and experience, rather than the direction of the Guidelines.
The loan process ends when, after consulting the Guidelines and exercising judgment, an underwriter either approves the loan or denies the application. If the underwriter approves the loan, it goes into a final processing phase, during which the loan processor will coordinate with the customer and the title company to schedule the closing.
After completing discovery, Plaintiffs and Huntington each filed motions for summary judgment. In granting Huntington's motion for summary judgment and denying Plaintiff's motion, the district court reasoned that underwriters performed administrative work because they did not actually create or sell Huntington's
The court reviews a grant or denial of a motion for summary judgment de novo. Stephenson v. Allstate Ins. Co., 328 F.3d 822, 826 (6th Cir.2003). "Summary judgment is appropriate if, examining the record and drawing all inferences in a light most favorable to the non-moving party, there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law." Schaefer v. Ind. Mich. Power Co., 358 F.3d 394, 399 (6th Cir.2004).
The FLSA requires employers to pay their employees overtime for work performed in excess of forty hours per week. 29 U.S.C. § 207(a)(1). But this provision does not apply to individuals "employed in a bona fide . . . administrative . . . capacity." 29 U.S.C. § 213(a)(1). An employee working in a "bona fide administrative capacity" is someone:
29 C.F.R. § 541.200(a) (emphasis added); see also Foster v. Nationwide Mut. Ins. Co., 710 F.3d 640, 642 (6th Cir.2013).
An employee who satisfies all three elements falls within this "administrative exemption." See Renfro v. Ind. Mich. Power Co., 497 F.3d 573, 576 ("Renfro II") (6th Cir.2007) (holding that an employer must establish all three elements of the defense with regard to its employees in order to prevail). Although the parties do not dispute that underwriters satisfy the first element of the exemption, Plaintiffs contend that underwriters do not satisfy the second and third elements. The burden is on the employer to prove each element of the exemption by a preponderance of the evidence. Foster, 710 F.3d at 642. In other words, Huntington can prevail only by providing evidence that creates, at the very least, a genuine issue of material fact as to whether underwriters meet all of the elements. If the Bank cannot satisfy its burden, the court must deny its motion for summary judgment and grant Plaintiffs' motion for summary judgment. Martin v. Ind. Mich. Power Co., 381 F.3d 574, 578 (6th Cir.2004). Moreover, the administrative exemption is "to be narrowly construed against the employer[ ] seeking to assert [it]." Id. (quoting Douglas v. Argo-Tech Corp., 113 F.3d 67, 70 (6th Cir.1997) (internal quotation marks omitted)).
To fall within the administrative exemption, an underwriter's work must "directly relate[ ] to the management or general business operations of [Huntington] or [the Bank's] customers," 29 C.F.R. § 541.200(a)(2), and that work must be an underwriter's "primary duty." 29 C.F.R. § 541.201(c).
Two Sixth Circuit cases dictate this result: Renfro I and Foster. In Renfro I, the plaintiffs were "planners" who worked for Indiana Michigan Power Company, doing business as American Electric Power ("AEP"), a business that operated several power plants. 370 F.3d at 515. Planners took job orders, identified maintenance or new construction work, and then created work packages that the power plant's craft workers would use in the field. Id. AEP classified these employees as exempt from overtime. Id. The planner plaintiffs argued that their work was not administrative, but rather a maintenance function best classified as production.
Huntington's underwriters perform a similar servicing function as the Renfro I planners. By creating maintenance plans for the power plants, the planners may have contributed to their business's principal production activity of generating electricity, but their role was better conceptualized as servicing the power plant by advising the company on how to make repairs. Here, while the underwriters' duties touch on Huntington's principal production activity of selling loans, the underwriters exist primarily to service the Bank by advising whether it should accept the credit risk posed by its customers.
In Foster, the Sixth Circuit considered whether special investigators ("SIs") who worked for Nationwide Mutual Insurance Company ("Nationwide") performed a job directly related to Nationwide's management or general business operations. SIs would investigate potentially fraudulent insurance claims, subject to "guidelines and
In arriving at that decision, the Sixth Circuit analogized the work of SIs to that of insurance claims adjusters, whom the DOL regulations identify as examples of administrative employees. Id. at 645. Insurance claims adjusters "generally meet the duties requirements for the administrative exemption . . . if their duties include activities such as interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; [and] evaluating and making recommendations regarding coverage of claims. . . ." 29 C.F.R. § 541.203(a). The Foster court determined that "the SIs' work remains integral to the claims adjusting function, is performed in partnership with the [claims adjusters], and involves making findings that bear directly on the [claims adjusters'] decisions to pay or deny a claim." 710 F.3d at 646.
The work of Huntington's underwriters is similar to that of SIs and insurance claims adjusters in two ways. First, neither an underwriter nor an SI/claims adjuster generates business for his or her employer by directly selling a product. For the SI/claims adjuster, the insurance policy has already been sold to a customer, and the SI/claims adjuster "services" the insurance company by investigating a claim or determining whether to pay out a premium. For the underwriter, the customer has already consulted with a loan originator and selected a loan product, and the underwriter services the Bank by advising Huntington on whether it should accept the credit risk posed by a customer. As the district court concluded, "both Plaintiffs and insurance claims adjusters provide a service that does not generate business for their employers, but is necessary for their employers to do business." Second, both underwriters and SIs/claims adjusters broadly perform an investigative function. Just as SIs/claims adjusters receive a claim for insurance benefits and consider the facts surrounding the claim to ascertain whether the claim falls within the terms of coverage, underwriters receive a loan application and evaluate the facts surrounding the application to determine whether the Bank should accept the risk.
The job duties of Huntington's underwriters also resemble those duties of administratively exempt employees in the financial-services industry.
Plaintiffs contend that the Second Circuit's decision in Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir.2009), is on point. In that case, loan underwriters working for J.P. Morgan Chase ("Chase") challenged the company's classification of underwriters as exempt from the FLSA overtime requirement. Id. at 531. The Second Circuit agreed, concluding that the underwriters were production employees. Id. at 535. The court held that the underwriters' work was "not related either to setting `management policies' nor to `general business operations' such as human relations or advertising, but rather concerns the `production' of loans—the fundamental service provided by the bank." Id. at 534 (citation omitted). It emphasized that the underwriters "had no involvement in determining the future strategy or direction of the business, nor did they perform any other function that in any way related to the business's overall efficiency or mode of operation." Id. at 535. Underwriters were instead "trained only to apply the credit policy as they found it, as it was articulated to them through the detailed Credit Guide." Id.
While Davis is factually similar, the district court properly rejected the case's applicability, concluding that it is inconsistent with the precedent of this circuit. In this circuit, the focus is on whether an employee helps run or service a business—not whether that employee's duties merely touch on a production activity. Like the plaintiffs in Renfro I and Foster, underwriters perform work that services the Bank's business, something ancillary to Huntington's principal production activity. Furthermore, the job duties performed by underwriters resemble those duties performed by positions deemed administrative by the DOL regulations, including claims adjusters and employees in the financial-services industry. In fact, because the Davis court applied an older set of regulations, it failed to compare underwriters to claims adjusters or employees in the financial-services industry. Finally, because
Accordingly, Huntington's underwriters perform work that falls within the administrative exemption. The Bank therefore meets its burden concerning the second element of the administrative exemption. This leaves the third element of the exemption.
In order to be exempt due to status as an administrator, an employee's work must also "include[ ] the exercise of discretion and independent judgment with respect to matters of significance." 29 C.F.R. § 541.200(a)(3). Exercising discretion and independent judgment involves "the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered." 29 C.F.R. § 541.202(a). An employee exercising discretion and independent judgment "has authority to make an independent choice, free from immediate direction or supervision," although employees whose decisions are ultimately reviewable can still exercise discretion and independent judgment. 29 C.F.R. § 541.202(c).
In concluding that underwriters exercise discretion and independent judgment, the district court noted that "[t]he fact that the Bank even needs human underwriters—in addition to software programs—suggests that the decisions at issue are more than just mechanical calculations." Second, the court emphasized that while the underwriters' authority was "heavily tempered" by the Guidelines, the underwriters still had authority to waive or deviate from the Guidelines in certain instances. Plaintiffs argue that the district court erred in its conclusion because underwriters are "required to adhere to guidelines and manuals which strip them of the ability to exercise discretion and independent judgment."
But as this court held in Renfro II, an employee who is directed by guidelines and manuals can still exercise discretion and independent judgment. Renfro II involved whether AEP's technical writers fell within the third element of the FLSA's administrative exemption. Technical writers supported the maintenance department at AEP's nuclear power plant, developing written procedures on how to maintain equipment. 497 F.3d at 574. Prior to drafting a procedure, a technical writer consulted numerous sources, including the vendor manual, technical specifications, Electric Power Research Institution ("EPRI") guides, Institute of Nuclear Power Operators ("INPO") operating experiences, Nuclear Regulatory Commission ("NCR") bulletins, industry standards, and colleagues in other departments to determine how to maintain a particular piece of equipment. Id. at 574-75. A writer compared different ways to address a problem and picked a solution based on an assessment of the available information. Id. at 575. Exercising wide latitude, a writer then drafted a procedure incorporating that solution. Id. Although technical writers worked without direct supervision in drafting new procedures, they were guided by a manual on procedural writing that AEP developed. The manual essentially provided a writing template and standardized format and style, but it did not restrict the level of procedural detail a writer could apply. Id.
The technical writers argued that they did not exercise discretion and independent
Id. The court emphasized that the manual was not "an encyclopedia of strict requirements." Id. It did not answer substantive questions that could arise during the research, analysis, or development of a procedure, and it did not restrict the technical content of the instructions. Id. The manual merely outlined various items for the writer's consideration and recommended optional "checks" to ensure the feasibility of a completed procedure. Id. Indeed, "two different writers may solve the same problem two different ways, even though both solutions are equally effective." Id.
Just as the writing manual in Renfro II did not establish strict requirements that eliminated a writer's ability to exercise discretion and independent judgment, Huntington's Guidelines do not prevent its underwriters from acting outside its parameters. By imposing stipulations, creating exceptions, proposing counteroffers, and flagging applications, underwriters exercise independent judgment to depart from a straight approval or denial of a loan application based solely on the Guidelines.
Plaintiffs argue that they are analogous to the shift lieutenants in Ale v. Tenn. Valley Authority, 269 F.3d 680 (6th Cir. 2001). In Ale, the lower court held that those shift lieutenants were not covered by the FLSA's administrative exemption and were therefore entitled to overtime pay because nearly every decision a shift lieutenant made was governed by an order, rule, or regulation. Id. at 686-87. The lower court further held that the shift lieutenants did not fall within the "executive" exemption to the FLSA because their primary duty was not management. Id. at 687; see also 29 U.S.C. § 213(a)(1) (exempting "any employee employed in a bona fide executive . . . capacity" from overtime pay requirements). However, this court on appeal affirmed solely on the basis of the lower court's executive exemption ruling and did not address the administrative exemption or the exercise of discretion and independent judgment. Ale, 269 F.3d at 692. Accordingly, Ale has only the persuasive force of the district court opinion.
Finally, this exercise of discretion and independent judgment must also concern "matters of significance," or the "level of importance or consequence of the work performed." 29 C.F.R. § 541.202(a). "[T]he work itself . . . must be of substantial importance—not the size of the consequences or loss that may result from improper performance of the employee's duties." Martin, 381 F.3d at 583.
Plaintiffs contend that underwriters do not exercise discretion and independent judgment concerning matters of significance because the underwriters do not bear any responsibility for financial loss and do not determine the financial risk that Huntington will take for any given loan. However, while underwriters do not determine Huntington's overall risk guidelines, they still make decisions that significantly
Therefore, Huntington's underwriters satisfy the third element of the administrative exemption.
For the foregoing reasons, we
HELENE N. WHITE, Circuit Judge, dissenting.
I respectfully dissent. Defendants have not shown that Plaintiffs fall within the administrative exemption as a matter of law, and that Defendants are thus entitled to summary judgment. The record supports that there are genuine issues of fact regarding whether Plaintiffs' primary duty
HLUs make no holistic decisions; rather, like loan originators and processors, they are links in a chain that culminates in delivering loan products to the bank's customers. The exercise of discretion and independent judgment "involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered," 29 C.F.R. § 541.202(a), and "must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources," id. § 541.202(e). Unlike the insurance adjusters cited by the majority, who exercise discretion by "evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation," see 29 C.F.R. § 541.203(a), HLUs make no such independent discretionary decisions. Rather, HLUs must follow Defendants' very explicit and detailed manuals and guidelines. PID 842, 874, 880, 959, 983, 997, 1629. Defendant Huntington National Bank's Vice President Mary Cline testified that HLUs can approve a loan "with conditions," but that simply means that "there's additional information that the underwriter will still need," and the "conditions" are relayed to the loan processor, who collects the information and forwards it to the underwriter. Defendants have not shown that HLUs exercise discretion in determining whether
The majority asserts that HLUs' decisions "significantly impact the business and do determine the risk Huntington will accept for any particular loan." Maj. Op. at 997-98. I disagree. HLUs do not balance risk against security. The Product Development Group develops the various loan products and determines the risk level for each loan product, not HLUs. PID 891, 953-54. Moreover, loans cleared by HLUs are subject to independent review by two separate groups: the Pre-fund Audit Group and the Post-closing Quality Review Group. PID 911-12, 962-63.
The majority also concludes that HLUs exercise discretion and independent judgment concerning "matters of significance" because HLUs can approve loans of between $250,000 and $1,000,000. But all of the risk decisions are made elsewhere. And, tellingly, Defendants do not track the loans each HLU has approved or hold HLUs accountable when loans they approved default. PID 998-1001. Rather, Defendants' monthly review of HLUs is based on a production number calculated for each HLU based on the types of loan and review activities the particular HLU performs. PID 897-98, 906-08, 915. Because HLUs are evaluated based on the number of files reviewed, and the default rates of loans they approve are not even tracked, much less used as a basis of performance evaluations, a reasonable fact finder would likely infer that HLUs do not exercise discretion and independent judgment concerning "matters of significance."
The majority notes that "[t]he authority to grant a counteroffer does not appear in the Guidelines. Instead, it is left to the underwriter to use his or her judgment and experience." Maj. Op. at 991. However, according to Cline, HLUs lack authority to communicate a counteroffer to the loan processor and originator unless the customer meets all requirements for the loan being "counteroffered." That is, counteroffers involve no discretion; HLUs simply determine whether the customer meets the requirements of an alternative loan under Defendants' policies and manuals. PID 880-88.
Finally, although the majority accurately observes that in the 2004 regulations, 29 C.F.R. § 541.203(b)
See Administrator's Opinion Letter Fair Labor Standards Act, 2010 WL 1822423 (Dep't of Labor Mar. 24, 2010)
Further, "analysis" as used in § 541.203(b) does not contemplate the type of cabined analysis HLUs perform. HLUs determine whether the documentation submitted by the loan applicant and collected by the loan processor is accurate and meets the requirements set forth in Defendants' manuals and policies. In contrast, "analysis" in the financial services example referred to in § 541.203(b) involves evaluation of the information collected by weighing factors and making independent judgments, e.g., evaluating the source and predictability of the client's income, the client's present and future financial needs, and the client's investing experience and risk tolerance, and then suggesting investment products suitable to the client's profile. This type of analysis is not akin to analyzing credit information against a manual, which is what HLUs do.
I would reverse and remand for further proceedings.
The job duties of Huntington's underwriters, which include collecting and analyzing information of loan customers and advisors the Bank whether they are a safe credit risk, are not comparable to the "typical job duties of mortgage loan officers" addressed in the opinion letter, which consist primarily of "making sales." Huntington underwriters' primary duties involve service to the Bank and not to customers. Thus, the 2010 opinion letter does not offer meaningful guidance in this case.
29 C.F.R. § 541.700(a).
Administrator's Opinion Letter, 2010 WL 1822423, at *3.
